Say I loose a wallet password today, and 5 days down the road, each bitcoin is worth $1000 USD. Are those coins lost forever, or does the system somehow "reclaim" them back after X amount of time has gone by?

*Until such time as SHA-256 or ECDSA become cryptographically weak due to discovered flaws to make collision attacks possible, but for all intents and purposes they are gone as we don't know if that will happen or when it happens.

The coins will always be in the blockchain but without access to the wallet there is absolutely no way of accessing them. They are therefore considered gone forever. If the wallet were somehow able to be recovered they would still work since they never left the blockchain. The coins exist only in the blockchain. Your wallet is simply the passwords needed to show ownership and to spend them which is then reflected in the chain by miners.

I am not understanding the whole they are gone thing.. arnt they saved on a server somewhere never to be touched.. therefore the value of the coin will always be saved?.. I is confused.

Gone in a way that is similar to a gold bar dropped into the Mariana Trench is considered "gone". It still exists, but is is no longer accessible. Of course, with a gold bar in the Mariana Trench, there might be a chance of retrieving it with current technology. With lost private keys, there is no currently known technology that would allow you to retrieve it.

They aren't really lost. They are just no longer accessible by anyone. Nobody knows how many bitcoins are inaccessible because they are all still in the blockchain and can be counted, but there is no way to know if anyone has the private key or not.